Thornburg Reports $3.3 Billion First Quarter Loss

But CEO Larry Goldstone said much of the loss reflects a number of "nonrecurring and accounting driven" fair market value adjustments which the company was forced to run through its income statement because of uncertainty about whether or not Thornburg can hold the affected mortgage securities to maturity.

Sorting out the accounting treatment of Thornburg's assets has been a messy business. The company twice delayed reporting its first-quarter results. And even last Thursday, when the company issued its earnings release, it still did not provide a balance sheet or formal income statement.

The loss, which came to $20.64 per common share, reflected weak housing market conditions and secondary market turmoil in the first quarter, CEO and president Larry Goldstone said.

As a result of margin calls from the company's creditors, Thornburg had to sell assets and seek alternative financing for assets that remained in portfolio, he noted.

"Even in this difficult overall market, we were able to raise new capital to provide further liquidity to meet our borrower obligations," he said.

But the company's new financing deal, reached in March, gives its creditors the opportunity to buy half of Thornburg at fire-sale prices, considerably diluting current shareholders. On the plus side, the deal gives Thornburg a one-year reprieve from new margin calls.

The company had received $1.8 billion of margin calls since Dec. 31, 2007, but was only able to satisfy $1.2 billion of the total by early March. The company was forced to sell assets and arrange alternative financing and sell assets at a loss to meet its additional margin calls and reduce its reverse repurchase agreement obligations. In a conference call with investors and analysts, Mr. Goldstone said that despite a modest increase in delinquencies during the first quarter, the credit quality of Thornburg's portfolio remains strong.

"We don't anticipate that our losses are going to get significantly out of hand," Mr. Goldstone said.

While Thornburg had to suspend mortgage origination activity in February and March to deal with its financing issues, the company has since reopened its pipeline and started funding loans again.

First-quarter origination volume totaled $548 million.

Mr. Goldstone noted that Thornburg still has $31 billion of mortgage-related assets on its balance sheet. He also said that interest rate conditions and the company's cost of funds are currently "very favorable."

Late last Thursday, Thornburg Mortgage's shareholders approved proposals to increase authorized stock and amend terms of the company's existing preferred stock. The amendments to the company's charter increase the number of authorized shares of capital stock from 500 million to four billion shares. The amendments that were approved also modify the terms of the company's existing series of preferred stock to, among other things, remove restrictive covenants that currently prohibit the company from buying preferred stock when all cumulative dividends on the preferred stock have not been paid in full. The changes also affect the dividend payment on preferred shares. The company still must obtain approval from the holders of the preferred stock to make the modifications.

"Winning shareholder approval of management's proposals marks a milestone achievement in our efforts to rebuild the company and resume more normal business operations," Mr. Goldstone said in a statement.
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